Fall in European investment total about 10% to date: Savills
European investment volumes are expected to total between €275 billion and €280 billion according to preliminary third quarter figures from Savills, with the “sheds and beds” sectors remaining the assets of choice owing to their respective structural supply/demand imbalances which favour rental growth.
The firm said the Q3 total will be about €55 billion bringing the total for the first three quarters to slightly over €200 billion, a 10–11% drop compared to the same period last year.
Although it is too early for country-by-country figures, Savills said that the lull is spread across the region.
Three factors have brought the rapid change Savills discerns: The surge in inflation caused central banks to raise rates to historically high levels making the gap between bond and real estate yields is increasingly unfavourable to real estate – in September the spread between real estate and long-term bond yields dropped to 44 bps from the average of the last 10 years which was 279 bps; the rising cost of debt is reducing the range of opportunities in terms of countries, locations and in terms of asset classes, with very low-yielding assets looking increasing unviable; strong inflation is starting to drag down the European economy affecting investor sentiment.
However, despite the strong headwinds, Savills said the European investment market is in a better position than in the last cycle.
The reasons it cites are that prices started to adjust quickly, which is good because the bid-ask spread is the main stumbling block that can bring the market to a standstill. And although occupier demand is likely to be affected vacancy rates are low and an increased developments is unlikely given the fast-rising construction costs.